Fiscal Policy Use of government spending and revenue collection to influence the economy.

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Presentation transcript:

Fiscal Policy Use of government spending and revenue collection to influence the economy

Fiscal 0 Taxes and expenditures of huge amounts of money 0 Spends $250 million every hour 0 $6 billion a day 0 $2.3 trillion a year 0 Fiscal policy attempts to achieve economic growth, full employment, and price stability

Federal budget 0 Written document outlining how much government expects to receive and how they will spend it- Oct 1- Sept 30 0 Office of Management and Budget OMB-calculates and oversees budget-gives the President a budget report on spending 0 CBO-Congressional Budget Office- analyzes and collects all date on budget 0 Appropriations- spending bills from Congress

Fiscal Policies 0 Expansionary policies- increase output 1. Increase government spending 2. Cut taxes 0 Contractionary policies- decrease output 0 1. Decrease government spending 0 2. Raise taxes 0 Difficult- debt, predicting economy, expenditures SS, medicare, etc,,, 0 Getting President and Congress to work together

Fiscal Options 0 Classical Economics- free market believers 0 Great depression casted doubts 0 Keynesian Economics-John Maynard Keynes 0 Economy made up of 3 sectors-individuals, business, and government. Government should use policies to influence economy 0 Avoid recessions and depressions, control inflation, 0 Multiplier effect- $1 govt spending creates $1 in economic activity in economy

Fiscal Options 0 Demand side economics- govt spending + tax cuts will increase demand= econ growth 0 Supply side economics- tax cuts spur economic growth. 0 Balance- revenues is the key!!!!!!!!! 0 US has used all versions/combinations of fiscal options

Budget Deficits/National Debt 0 Budget SHOULD balance revenues=expenditures- Not happening 0 Budget surplus- revenues exceed expenditures 0 Budget Deficit- expenditures exceed revenue 0 How to pay for deficit? 0 Print money- leads to inflation 0 Hyperinflation- very high inflation 0 Borrow money- sell bonds/promisory notes 0 Treasury Bills, Treasury Notes, Treasury Bonds

National Debt 0 All money the Federal government owes to bondholders- China 0 Out of control today 0 Problems with National Debt 0 1. Reduces funds available for businesses to invest- crowding out effect 0 2. Government must pay interest to bond holders- China